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A Note on the (Un)Pleasant Arithmetic of Fiscal Policy: The Case of Italian Public Debt
Author(s) -
Marattin Luigi,
Marzo Massimiliano
Publication year - 2009
Publication title -
economic notes
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.274
H-Index - 19
eISSN - 1468-0300
pISSN - 0391-5026
DOI - 10.1111/j.1468-0300.2009.00212.x
Subject(s) - debt , economics , budget constraint , fiscal policy , constraint (computer aided design) , stability and growth pact , stock (firearms) , public finance , deficit spending , macroeconomics , debt ratio , economic policy , mathematics , microeconomics , member states , engineering , european union , mechanical engineering , geometry
Using the simple arithmetic of government budget constraint, we perform an illustrative analysis on the Italian case, investigating the consequences on the main public finance aggregates of the adoption of a fiscal policy rule responding to past real debt/GDP ratio. Such a rule, firmly grounded in the economic analysis, would allow the reduction of Italy's outstanding stock of debt without requiring the strict adherence to the 3 per cent criterion for deficit/GDP ratio, as prescribed by SGP (Stability and Growth Pact). We perform a forecasting exercise under five alternative scenarios and analyse the details of a structural debt reduction strategy with alternative yearly step.